Q. If sell-side research comes to be itemized on fund managers’ bills, do you think that’s really going to improve the quality of reports they get?
A. What we’ll probably find is that fund managers will be unwilling to pay for mediocre research and that the overall quality of research will go up. It is also likely that a lot of bad analysts will lose their jobs. Smaller boutique houses which have a different business model and which are very good at execution will come into their own.
The question is whether anyone is going to pay for any old research. My guess is they’ll pay for research from some people – for example, Christopher Mellor at SG Securities, who just won the Thomson Extel award for leading pan-European rising star analyst, or one of the other winners – but they won’t pay for everybody.
Q. I’m an investor relations officer at a small-cap US construction firm. This is my first job as an IRO, and I’m also the company’s first full-time investor relations representative. In fact everyone on the management team here is pretty new to investor relations. We’re about to meet with a buy-side analyst for the first time and we’re not too sure what to expect. What’s the difference between meeting with a fund manager and meeting with a buy-side analyst at the same institution?
A. The difference is that you need to do far more preparation. A buy-side analyst will have studied your company inside out, so if you’re a new investor relations officer they’ll probably know your company better than you do. You can expect very detailed and tough questioning and the analyst will have probably already drafted a report on your visit. Remember, buy-side analysts tend to be extremely well-qualified and are usually CFA charter holders.
Q. According to the latest Thomson Extel Pan European Survey (2003), more fund managers than last year are expecting to pay larger commissions for corporate access. Does this mean that, in light of the ongoing shake-up, sell-side analysts are going to be acting more like middlemen between firms and funds?
A. They always have done. This is not by any means a new phenomenon. The buy side rewards sell-side analysts on the basis of a number of criteria, one of which is how much corporate access they are able to arrange.
But forget about Extel; the buy side does its own polls. Any buy-side firm of any size will usually have its own voting system. For example, Fidelity doesn’t vote in many external polls but it has its own quarterly voting system in which a lot of points are allocated for arranging corporate visits. If a sell-side analyst scores highly for corporate access then he’ll get a lot of points, and a lot of commission will be directed to his employer.
Q. I’m responsible for IR at a mid-cap retailer. We have a pretty good relationship with most of the analysts covering us, except for one particularly difficult fellow who’s a major pain. More recently, he’s taken to asking fairly nasty questions on our conference calls and at our analyst meetings. Now our CFO wants to cut him off. I’m not sure. What can I do?
A. The CFO can’t cut anybody off because of Reg FD. What he can do is control the Q&A. Your conferencing provider should be able to tell you – in real time – who’s in the question queue, leaving you to decide who gets to ask a question. Of course that’s a lot more difficult at a group meeting, and you’ll just have to tough it out.
Meanwhile, if your CFO won’t meet with the angry analyst, then try and find someone who will. The most important thing is keep communication lines open.
Also, get things into perspective here. Who rates this guy anyway? Is he somebody the institutions rate? If they don’t rate him then I wouldn’t worry about him.
E-mail questions to Heather McGregor – [email protected]. McGregor is a former IRO and investment analyst who currently works on IR assignments for Taylor:Bennett, an executive search firm specializing in communications jobs
